“Years ago, responsible investing was just screening out bad companies or industries. Now it is positive and dual pronged: investing in companies that are doing their best [for the environment], but then also finding new opportunities, such as renewable energy projects, that are good for the environment,” Liberatore said.
For instance, if an investor can buy structured securities to fund loans and leases for solar power, it lowers the cost for the project. “This provides a personal touch for the investor because he can see he is providing capital for a project he is interested in,” he added. “Investors can put money into individual projects that excite them.”
Finding these individual investment opportunities can sometimes be difficult unless a firm has a large staff devoted to this market, said John Goldstein, managing director of client strategy and impact investing for Goldman Sachs Asset Management and co-founder of Imprint Capital, GSAM’s impact investing arm.
Responsible investing is another tool that people should use in selecting good opportunities for returns, Goldstein said. “You need an investment logic that outlines climate change as an investment tool,” he said.
Some institutional investors have pledged to reduce the carbon footprint of their portfolios, in part by finding companies that are more efficient in reducing carbon emissions and overweighting the portfolio in those companies.
Goldstein said it is easier to have an impact by investing in private companies rather than public ones, but it can be more difficult to find suitable private companies, which aren't subject to disclosure regulations. It helps to work with an impact investing company with a large research staff and broad knowledge of the impact investing market, such as GSAM, he said.
Investing by environmental, social and governance guidelines “is not a magic bullet,” Goldstein said. “It is another tool to use for successful investing. Investors need to get past the ideological part and debate how to use this for constructive portfolio building.”